Global equity markets stabilised as investors took comfort from the comments of European central banks on th...
Weekly Weekly
change (%) change (%)
MSCI AC World Index 0.69 Xetra DAX -1.93
FTSE Eurotop 100 0.71 CAC 40 0.40
MSCI AC Asi...
relatively positive view on private bank players vis-à-vis the public sector units primarily owing to
concerns about asset...
05.07.2013 28.06.2013
Exchange rate (Rs./$) 60.22 59.39
Average repos (Rs. Cr) 27,845 65,483
1-yr gilt yield (%) 7.54 7.47...
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Weekly Market Review - July 5, 2013


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Weekly Market Review - July 5, 2013

  1. 1. International Global equity markets stabilised as investors took comfort from the comments of European central banks on the continued accommodative monetary policy stance.The MSCI AC World index gained 0.69% as select pieces of positive economic news flow also aided sentiment. However, EM countries continued to underperform their developed market peers.A stronger-than-expected US jobs report reinforced views the Federal Reserve will start reducing asset purchases later this year and pushed up US Treasury bond yields. German treasury yields however eased due to weak economic data. Political turmoil in Egypt raised crude oil supply concerns and prices firmed up before easing towards the end of the week.The Reuters Jefferies CRB Index ended 1.85% higher,even as gold prices declined.The US dollar got a boost from strength in labour markets, while the euro and sterling weakened. • Asia-Pacific: Chinese equities witnessed a relief rally as the liquidity squeeze eased and inter-bank rates normalized, while markets in Indonesia, South Korea and Taiwan fell. China’s manufacturing PMI data was however lacklustre – the official index declined to 50.1 from 50.8 and the HSBC gauge remained below the key 50-mark.The Nikkei also posted sharp gains - Japanese Tankan survey index climbed into positive territory reflecting marked improvement in sentiment amongst large manufacturers. Reserve Bank of Australia kept the policy rate unchanged at 2.75%. • Europe/Africa: Leading European equity indices closed mixed – fall in German factory orders (1.3%mom) weighed on Xetra DAX, while stronger UK data boosted FTSE stocks. Both ECB and BoE kept rates/asset purchase programmes unchanged. ECB guided for an easy monetary stance for an extended period of time. UK PMI data was quite encouraging – both manufacturing and services PMI rose. European Parliament voted against introducing caps on fund managers’ bonuses. Riksbank kept rates unchanged this week. Russian policymakers expanded the central bank’s ambit to cover brokerages and financial organizations. On the corporate front, Nokia is buying out Siemens stake in their mobile equipment network venture for $2.2 bln. Romania and Poland announced rate cuts. Egypt’s stock and bond markets rallied on domestic buying after the military took charge of administration after ouster of President Morsi. Fitch cut long term rating by one level to B- on concerns the ongoing political turmoil will hurt growth. • Americas: US economic data lifted investor sentiment and helped US markets close in the positive territory during the holiday shortened week. In contrast, Brazilian markets remained under pressure. US non-farm payrolls exceeded market expectations – the economy added 195,000 jobs and the unemployment rate held steady at 7.6%. ISM manufacturing index rose to above 50 in May – suggesting expansion. In contrast, the non-manufacturing index dipped to 52.2. In Canada, data suggested labour market was flat last month with economy shedding about 400 jobs, after adding 95,000 jobs last month. On the corporate front, Steinway Musical Instruments is being acquired by Kohlberg for $438 mln. Market Review WEEK ENDED JULY 5, 2013
  2. 2. Weekly Weekly change (%) change (%) MSCI AC World Index 0.69 Xetra DAX -1.93 FTSE Eurotop 100 0.71 CAC 40 0.40 MSCI AC Asia Pacific 0.62 FTSE 100 2.57 Dow Jones 1.52 Hang Seng 0.25 Nasdaq 2.24 Nikkei 4.63 S&P 500 1.59 KOSPI -1.61 India - Equity Indian equity markets extended gains on the back of positive global sentiment and corporate newsflow. FMCG stocks continued to outperform the broad markets, while PSU and banking stocks declined. On the M&A front, Hero MotoCorp bought 49.2% stake in US based superbike company Erik Buell Racing for $25 mln. FII flows were slightly negative during the first four trading days of the week. • Macro/Policy: After declining for three months, India's HSBC Markit manufacturing PMI increased marginally from 50.1 levels to 50.3 in June, on the back of higher export orders and gains in overall output. At the same time, the services PMI dropped to 51.7 from 53.6. New business orders sub-index recorded a fall in for both the manufacturing and services indices. Besides, the rise in input price pressures is a cause for worry.There have been quite a few developments on the policy front - • Foreign Direct Investment (FDI)/Telecom: As part of its efforts to augment foreign capital flows, the government is reviewing the FDI caps prevalent in various sectors.This week,Telecom panel proposed raising the FDI limit for the sector to 100% from 74% previously.This could provide some succor to a sector that has come under pressure in recent times due to policy issues and heightened competition. • Banking: Late last week, RBI put out the draft guidelines for wealth management and third party distribution services provided by banks. The overall intent of the guidelines is to curb mis-selling of products, deal with conflict of interest issues arising out of the marketing/advisory function, enhance KYC compliance and risk management systems. Some of these measures, especially those dealing with incentives and the need for establishing new arm for wealth managed could have a short term impact on fee incomes. The latter has been a key growth driver for many banks in the last decade or so, and we expect quality private banking players with robust systems to gain lead ahead of the rest. Draft norms on banks’ exposure to un-hedged corporates were announced and key recommendations include - higher provisioning and risk-weights linked to earnings’ sensitivity to potential losses on un- hedged exposures. Once implemented, the norms can hurt earnings of those banks with higher exposure to forex lending business, but also lead to better risk management at banks.We continue to maintain a
  3. 3. relatively positive view on private bank players vis-à-vis the public sector units primarily owing to concerns about asset quality and capital adequacy. Indian policymakers continue to push through new measures, albeit at a slower pace.The economic impact of many of these policy decisions will depend on the execution and will be visible only over the medium to long term. Given the current account deficit situation, there is clearly a need to make Indian markets and businesses attractive to foreign investors. Weekly change (%) S&P BSE Sensex 0.52 CNX Nifty 0.44 CNX 500 0.55 CNX Midcap 0.50 S&P BSE Smallcap 0.86 India - Debt Indian bond yields were volatile this week and closed mixed amidst continued FII outflows (over $710 mln), while the rupee fell to below Rs.60/$ levels amidst sustained strength in the US dollar. • Yield movements: Bond yields closed higher at the shorter end of the curve, while yields at the longer end were relatively flat. Yields on the 1-year and 5-year papers increased by 7 bps each, while those on the 10-year paper were flat at 7.59%.Yield on the 30 year Gilts dipped 1 bp. • Liquidity/ Borrowings: Demand for liquidity at RBI’s LAF window averaged Rs. 27,800 crore this week and overnight call money rates slid to 6.60% levels. Scheduled bond auctions of GOI securities worth Rs. 15,000 crores received bids of over Rs. 40000 crores and were fully subscribed. • Forex: Continued strength in the US dollar and FII outflows led the Indian rupee to fall by by 1.41% and closed below the Rs.60/$.As of Jun 21, 2013, India’s forex reserves decreased $3.2 bln in the week to June 28 and stood at $284 bln. • Policy: The Union Cabinet passed the populist Food Security Bill as an executive ordinance, with the focus on providing food at subsidized prices to nearly two-thirds of the country’s population.The bill is expected to push up food subsidies and initial estimates suggest the incremental burden may be to the tune of 0.2% of GDP (and possibly revised higher depending on implementation costs).Whilst the government has managed to keep the fiscal deficit in check in recent times and impact on FY14 numbers is likely to be limited, there will be concerns over the medium to long term about impact of increased subsidies.
  4. 4. 05.07.2013 28.06.2013 Exchange rate (Rs./$) 60.22 59.39 Average repos (Rs. Cr) 27,845 65,483 1-yr gilt yield (%) 7.54 7.47 5-yr gilt yield (%) 7.69 7.62 10-yr gilt yield (%) 7.59 7.60 Source: Reuters, CCIL The information contained in this commentary is not a complete presentation of every material fact regarding any industry,security or the fund and is neither an offer for units nor an invitation to invest.This communication is meant for use by the recipient and not for circulation/reproduction without prior approval.The views expressed by the portfolio managers are based on current market conditions and information available to them and do not constitute investment advice. Risk Factors: All investments in mutual funds and securities are subject to market risks and the NAVs of the schemes may go up or down depending upon the factors and forces affecting the securities market.The past performance of the mutual funds managed by the Franklin Templeton Group and its affiliates is not necessarily indicative of future performance of the schemes. Please refer to the Scheme Information Document carefully before investing. Statutory Details: Franklin Templeton Mutual Fund in India has been set up as a trust by Templeton International Inc. (liability restricted to the seed corpus of Rs.1 lac) with Franklin Templeton Trustee Services Pvt. Ltd. as the trustee (Trustee under the Indian Trust Act 1882) and with Franklin Templeton Asset Management (India) Pvt. Ltd. as the Investment Manager. Copyright © 2012 Franklin Templeton Investments.All rights reserved